Thursday, June 14, 2007
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A pop quiz for Senators Baucus, Graham, Grassley, and Schumer
The Financial Times' Eoin Callan, Krishna Guha, and Richard McGregor report on a bipartisan effort to introduce a bill aimed at punishing China for currency manipulation:
China came under increased pressure to revalue its currency on Wednesday as a bipartisan group of US senators introduced legislation designed to push the Bush administration towards a full-blown trade dispute with Beijing.Meanwhile, Chris Nelson reports on how hearings on the Korea-U.S. Free Trade Agreement went earlier this week. Nelson is usually respectful in his language, so this passage is particularly telling:
Deputy USTR Karan Bhatia and [Assistant Secretary of State] Chris Hill spent the morning being whipped, insulted, and generally abused, on a bipartisan basis, by the House Foreign Affairs' subcommittee on trade and terrorism - an interesting combination of jurisdictions.Clearly, Congress is upset about U.S. trade policy. And when congressmen are upset, stupid policies usally follow.
Here's a multiple-choice question to the proposers of the new China bill:
The American economy is experiencing rising interest rates and worries about rising inflation. Neither of these trends bodes well for average Americans.I'm sure Chuck Schumer, eminent economist, will figure out the correct answer. posted by Dan on 06.14.07 at 08:54 AM
I'm working in Michigan today, which is in the 6th year of a one year recession.
This is not just about statistics and sarcasm, real people are being hurt, with the exception of tenured professors.
Unless something changes there will be a significant populist backlash, and then the "freer trade" agenda will be in real trouble.
I'm sorry, but is there ANY economic problem in Michigan that the people of that state have not brought upon themselves? Dopey management and unions of car companies and dopey government have made things pretty bad. To suggest that limiting free trade, which will make goods more expensive for people whose leaders have bankrupted them, is just, well, dopey.posted by: John on 06.14.07 at 08:54 AM [permalink]
"The American economy is experiencing rising interest rates and worries about rising inflation."
Give me a break.
I don't know how we ever got through the mighty collapse of the economy that occurred the last time we experienced interest rates are rising to these levels, which was... last summer.
And inflation, while slightly above the Fed's target, is benign.
I don't know why Daniel always is predicting that things are about to be really bad for our economy. Remember 3 years ago when Drezner was so worried that the dollar was going to crash? Didn't happen.
Drezner seems like one of those economists who are predict ten of the last 5 recessions. The sky isn't falling now. And it won't even fall if this asinine China legislation is passed.posted by: Al on 06.14.07 at 08:54 AM [permalink]
I'd just as soon the question of whether to ratify a trade agreement with a longtime American ally not be conflated with the issue of how to respond to Chinese manipulation of the yuan. These are separate questions, however much they may involve similar feelings on the part of some people.posted by: Zathras on 06.14.07 at 08:54 AM [permalink]
Until 2006, I believe, most of the manufacturing jobs lost in Michigan (and the rest of the rustbelt) were not with the Big 3, many were not auto related at all.
But that is ok, because NAFTA was supposed to create a flood of new high value jobs. Remember?
Protectionism isn't the answer.
Having the Treasury Secretary licking the boots of the Chinese isn't the answer either.
Having John Snow run a car company will be a disaster.
But at least Bob Rubin gets a good bonus.
And Krugman is finally eating just a little bit of crow.posted by: save_the_rustbelt on 06.14.07 at 08:54 AM [permalink]
Drezner your knee jerks are showing. Stephen Jen has some comments on the proposed senate legislation which is more serious, and genuinely interesting.
"The US Senate Finance Committee’s proposed bill is not bad. In the bill put forward on Wednesday by Senators Baucus, Grassley, Schumer and Graham, it was proposed that, if currency misalignments resulting from distorted policies (the ‘malign’ type of currency misalignments) are not resolved after 360 days, the US Treasury, in consultation with the Fed, could consider outright currency intervention. We have these thoughts:
First, this bill is not nearly as protectionist as it could have been, as it does not contain automatic triggers for countervailing duties.
Second, it does not mandate but only allows the Treasury to decide on outright currency intervention. Assuming that the US Treasury tries to do things in the best economic, not political, interest of the US, it would not hastily conduct interventions.
Third, one way we judge to see if a policy is ‘good’ is to ask what the economic impact would be if other countries were to adopt the same policy. We believe that this particular bill is sensible enough that if Euroland and Asia were also to adopt this bill, the net impact on the global economy would not necessarily be negative.
Fourth, in practice, however, there would be operational issues, particularly regarding emerging market currencies such as the CNY. If the US Treasury were to decide to intervene to sell dollars and buy CNY, it would be difficult for it to implement this trade without the consent of Beijing.
Fifth, this bill presumes that the JPY misalignment is considered ‘benign’, while the CNY misalignment is considered ‘malign’. Under this bill, no action can be taken regarding the JPY.posted by: dissent on 06.14.07 at 08:54 AM [permalink]
When argentina had too much of in imbalance between imports and exports, we had a solution for them. Import less and export more.
That has been our solution for everybody who gets in this spot, except us.
The chinese are keeping us from following this solution. When we devalue our currency it makes our stuff cheaper and other people's stuff more expensive, and so we can export more and import less. But the chinese then devalue their currency just as much. If we couldn't compete with them on price before we devalued, why could we compete with them after both are devalued?
In a way this is good for us. The chinese give us stuff cheap. We'll never really have to pay for it because at some point the chinese *will* revalue their money and let ours keep depreciating, which will wipe out a lot of our debt.
If you think this is a good thing for us in the long run, I have a bridge in Brooklyn you can have a long-term lease on....
This economic analysis is something that lots of people can understand without even Econ 101. Is there sophisticated economic analysis that happens to be correct that invalidates it?
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